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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Charlie Palett. Doug

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Speaker 2: Chrisner has the day off. Investors are looking ahead to

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Speaker 2: the Federal Reserve decision happening later this week. FED Chair

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Speaker 2: J Powell is expected to push through another quarter point

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Speaker 2: interest rate cut this week that despite growing on ease

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Speaker 2: among fellow policymakers, that inflation remains too high, and in Asia,

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Speaker 2: the Reserve Bank of Australia's rate decision under raft of

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Speaker 2: Chinese data are the key events in the week ahead.

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Speaker 2: We heard from Mark Matthews, had of Asia Research at

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Speaker 2: Julius Bear and he spoke with Bloomberg's Avril Hong and

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Speaker 2: Sherry on what are.

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Speaker 3: You expecting this week? I mean, twenty five is baked in,

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Speaker 3: but what else are you expecting to hear from the

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Speaker 3: US Central Bank?

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Speaker 4: Well, everybody wants to see how hawkish of a cut

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Speaker 4: it is, because we know there are a lot of dissenters.

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Speaker 4: I can count basically six out of the twelve voting

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Speaker 4: members of the FMC who expressed some concern over inflation,

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Speaker 4: and so we'll have to look at how many dissenters

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Speaker 4: there were and how Chairman Powell handles the Q and

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Speaker 4: A session to see how guarded they want to be

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Speaker 4: about further rate cuts going forward. But for the record,

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Speaker 4: we still expect another rate cut in January and then

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Speaker 4: one more in March.

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Speaker 3: What is this going to mean for Asia currencies including

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Speaker 3: the yin There's some expectation that the BOJ will have

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Speaker 3: to hike and then keep hiking for us to see

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Speaker 3: more sizeable appreciation in the currency.

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Speaker 4: I think that's probably right because they have a significant

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Speaker 4: balance sheet they can also offload to help tighten monetary policy.

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Speaker 4: So we are looking for a rate hike in Japan

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Speaker 4: this month, then we're looking for one more in June

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Speaker 4: next year, so that would take them up to policy

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Speaker 4: rate of zero point seven five percent, which still leaves

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Speaker 4: real rates deeply negative because their inflation is at three percent.

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Speaker 4: So I would expect some exp appreciation in the yen,

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Speaker 4: but I wouldn't expect it to skyrocket. And if you

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Speaker 4: compare now to that last time there was a surprising

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Speaker 4: change in the BOJ and a big reversal in the end.

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Speaker 4: There were a lot of short positions back then that

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Speaker 4: needed to be covered, and now, in fact, people are

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Speaker 4: on average slightly long the end.

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Speaker 1: Yeah, that's a good point, right, because what we saw

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Speaker 1: in July of twenty twenty four was that crazy unwind

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Speaker 1: when it came to yen carry trades, and in fact

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Speaker 1: that even hit US stock performance. Will there be any

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Speaker 1: implications from what the Japanese policymakers do here in Japan

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Speaker 1: forlobal markets, especially given how sensitive global bonials have been

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Speaker 1: to jgb's.

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Speaker 4: I don't think so, because I still think that Japanese

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Speaker 4: investors will want to keep a healthy exposure to US treasuries,

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Speaker 4: and so I know they own over a trillion of them.

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Speaker 4: But as I said, if the policy rate in Japan

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Speaker 4: is only seventy five basis points in June of next year,

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Speaker 4: then I'm not expecting the Japanese government bond yields to

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Speaker 4: skyrocket further. And where they are now, I would say

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Speaker 4: is actually reflective of a healthy economy. I know there's

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Speaker 4: great consternation around how quickly they've gone up, but I

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Speaker 4: think Japan is in a much better situation today with

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Speaker 4: some decent inflation and some decent growth than in the

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Speaker 4: decades past when they had very little of either.

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Speaker 1: Mark we have plenty of central bank decisions to go

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Speaker 1: around this week, including the RBA. Of course, we had

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Speaker 1: the RBI cutting rates as well on a week where

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Speaker 1: we have plenty of ego data China trade data today

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Speaker 1: as well. Is there anything in particular that you're watching

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Speaker 1: for a moment or catalyst when it comes to Asian markets, Yes, I.

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Speaker 4: Am watching the RBA. It is our favorite bond market

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Speaker 4: in Asia, and the reason for that is you get

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Speaker 4: a much higher yield in Australian investment great corporate bonds

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Speaker 4: than their US peers. If memory serves me right, it's

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Speaker 4: about five and a half percent, and their inflation is high.

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Speaker 4: I think it's over three percent. Their unemployment is very low,

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Speaker 4: and their private sector is doing very well. There's a

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Speaker 4: lot of confidence in the economy. So I don't think

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Speaker 4: the RBA will cut and I think that will provide

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Speaker 4: stability to their currency. So we're looking for the Aussie

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Speaker 4: to be about five and a half percent higher twelve

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Speaker 4: months from now versus US dollar, and putting all that together,

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Speaker 4: I think it's a very good environment to invest in

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Speaker 4: corporate bonds.

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Speaker 3: The thing of the RBA is also that I think

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Speaker 3: investors are watching to see how hawkish they are and

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Speaker 3: they've been chatting not so long ago about a prospective hike.

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Speaker 3: Is that something that you're putting in the calculus? How

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Speaker 3: might that put risks to your existing view?

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Speaker 4: And we're not expecting a hike in Australia, but we

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Speaker 4: should watch the inflation rate because it has been rising

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Speaker 4: for the last four to five months and also been

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Speaker 4: above expectations for the last four to five months. So

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Speaker 4: I guess if their economy really gets a big head

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Speaker 4: of steam, that they would need to raise rates, but

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Speaker 4: right now it's not in our forecast.

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Speaker 3: One of the economies very closely tied to China's economy,

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Speaker 3: of course, is Australia. When it comes to what you're

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Speaker 3: seeing among tech AI leadership is the I guess risk

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Speaker 3: to the view given how these things we've seen in

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Speaker 3: the past two years, they shift very quickly. We've gone

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Speaker 3: from open AI to alphabet What is that going to

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Speaker 3: mean for Chinese tech investment.

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Speaker 4: Well, it's a different ecosystem, of course, So they do

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Speaker 4: have artificial intelligence, they do have large language models. But

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Speaker 4: in China you're also talking about advanced manufacturing, robotics and biotechnology,

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Speaker 4: and so what I think is interesting is how quickly

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Speaker 4: They're picking up market share around the world with their technology,

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Speaker 4: and that has implications for their currency because the more

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Speaker 4: they sell those things overseas, the more money will be

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Speaker 4: repatriated to China into the redmen B. And so I

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Speaker 4: think actually the renmen B will be trending up over

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Speaker 4: the next few years as they increase their global market

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Speaker 4: share in these products and services that they're very competitive in.

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Speaker 2: Mark Matthews, head of Asia Research at Julius Behar, speaking

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Speaker 2: to Bloomberg's April Hong and Sherry On Coming up, we

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Speaker 2: will dive deeper into the latest data coming out of

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Speaker 2: Japan and what this means for the Bank of Japan's

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Speaker 2: rate decision. Welcome back to the Daybreak Asia podcast. I'm

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Speaker 2: Charlie Peck. Doug Chrisner has the day off. We go

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Speaker 2: to Japan next, where a slew of economic data was

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Speaker 2: released In Tokyo, the labor cash earnings were released. Stronger

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Speaker 2: wage gains in October bolstered the case for the Bank

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Speaker 2: of Japan to deliver a twenty five basis point rate

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Speaker 2: cut at its December eighteenth and nineteenth meeting. And for more,

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Speaker 2: we heard from Bloomberg's Brian Fowler. He spoke to Bloomberg's

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Speaker 2: April Hong and Sherry On.

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Speaker 5: First of all, we had the nominal gains which have

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Speaker 5: been very steady, and that's a positive sign for the BOJA.

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Speaker 5: On the other hand, we saw real wages fall for

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Speaker 5: a tenth straight month. But the problem there isn't the

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Speaker 5: nominal wage gains, those are steady, it's the inflation. So

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Speaker 5: that's yet another reason why it makes sense for the

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Speaker 5: boj to hike rates to try to put a cap

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Speaker 5: on inflation. So I think overall, the wage data definitely

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Speaker 5: support the case for a hike on December nineteenth, and

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Speaker 5: possibly for further tightening well into two six.

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Speaker 3: Not to say that we should be discounting what we

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Speaker 3: got out of the third quarter GDP numbers.

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Speaker 5: Well, aver I wouldn't discount it. Those numbers definitely were

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Speaker 5: a little bit bleaker than we expected, and they will

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Speaker 5: add justification to Prime Minister Chakeichi for the very large

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Speaker 5: stimulus package that she announced last month. On the other hand,

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Speaker 5: we've got all kinds of conflicting data. A week from

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Speaker 5: today you can see this on the Bloomberg terminal. We

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Speaker 5: have the Tongkon coming out, and we've already got surveys

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Speaker 5: from aonymous showing that they broadly expect a business sentiment

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Speaker 5: to stay steady, possibly even getting a little bit better

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Speaker 5: for large manufacturers. So the BOJ is going to be

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Speaker 5: looking at all these figures, wages, the household spending we

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Speaker 5: had last last Friday, today's revised GDP, and of course

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Speaker 5: Tong Kong next week. And I think broadly speaking, while

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Speaker 5: there are pockets of weakness, the trend remains fairly solid

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Speaker 5: and certainly solid enough for the BOJ to hike rates.

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Speaker 5: Of course, the BOJA will say that policy even with

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Speaker 5: the hike, remains accommodative. That's important to show that it's

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Speaker 5: on the same page as the government. But I think

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Speaker 5: all things being said, there's no reason not to go

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Speaker 5: ahead with a twenty five basis point hike.

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Speaker 1: To your point on being on the same page, I mean,

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Speaker 1: for the last couple of weeks we continue to get

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Speaker 1: these signals coming from the government that they're not going

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Speaker 1: to get on the way of a hike.

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Speaker 5: Yeah, exactly. So they could have anytime they could have,

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Speaker 5: they could have said things to indicate that they did

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Speaker 5: they were not in favor of the BOJ. And from

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Speaker 5: the government side, we haven't seen that, and also from

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Speaker 5: Governor Ueita side, he's given fairly subtle hands. He said,

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Speaker 5: I'm working closely with the government, and we know that

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Speaker 5: he met with Takaichi. The implication is that he explained

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Speaker 5: to her what needed to be done and she did

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Speaker 5: not object. And he's basically said that he thinks that

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Speaker 5: he's got the green light to do whatever he thinks

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Speaker 5: needs to be done, and we think that.

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Speaker 2: Means I Bloomberg's Brian Fowler speaking to Bloomberg's April Hogg

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Speaker 2: and Sherry On.

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Speaker 6: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 6: Asia Edition podcast. Each weekday, we look at the story

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Speaker 6: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 6: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 6: or anywhere else you listen. Join us again tomorrow for

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Speaker 6: insight on the market moves from Hong Kong to Singapore

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Speaker 6: and Australia. I'm Doug Prisoner and this is Bloomberg

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Speaker 2: Four